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Investing amidst election fatigue: focus on long-term fundamentals

If, like me, you regularly occupy the Anglo-Saxon media channels, then by now you are probably suffering from election fatigue. The constant coverage of recent and upcoming elections in both the UK and the US, and even France, is getting very tiring and rather samey. Yet, despite the countless claims and counterclaims and the endless political analysis by enthusiastic pundits and journalists alike, I see little evidence that those seeking a mandate fully grasp the challenge before us. The policies currently emanating from both left and right address the symptoms of our current malaise, not the cause. This reminds me of an apposite quotation I saw recently, by the philosopher Bertrand Russell:

"Democracy is the process by which people choose who to blame."

Until a leader emerges both willing and able to prescribe and administer the tough medicine necessary to revitalise the western economic model, then we will continue to stumble while others rise. Mercifully, judging by the conversation at my family table, I am now too ancient to consider offering myself as part of the solution to this.

For those of us invested in the capital markets, the saving grace is that most elections have limited impact on overall investment returns, absent the short-term volatility that normally accompanies such happenings. There is a raft of data and studies available on this for anyone with a laptop and time to spare, but many will contend that it is difficult to draw statistically significant and decisive conclusions about how elections impact stock market returns. Suffice-it-to-say, investment decisions should be based on longer‑term fundamentals, not near‑term political outcomes, and the former is very much how we invest in SKAGEN.

Market concentration

After all the excitement around the market-lifting performance of the Magnificent Seven[i] during 2023, it is hard not to observe that so far this year these tech giants have been winnowed down to the Fab(-ulous) Four – being Amazon (+30.0% YTD), Meta (+44.1%), Microsoft (+35.3%) and Nvidia (+203.3%)[ii]. There are arguments for and against their valuations of course, but I think this probably misses the essential point; market concentration is a very real and potentially painful risk. These four companies represent over a fifth of the S&P 500 index’s total weight and when so much money and sentiment is invested in a single idea or investment theme, then it is time to tread cautiously.

Besides, the Fab Four are not the only show in town, in less exciting news, some very large and somewhat dull consumer staples companies have delivered returns almost twice the S&P 500’s 16.1% year to date total return. These Boring Bangers[iii] have gained strongly, despite revenues falling short of inflation in recent years. It seems the story of American exceptionalism continues to hold true in the capital markets and on Wall Street, even if it is not so evident on Main Street.

Either way, when excess return is so concentrated, it’s always a good time to review one’s investment portfolio. My own portfolio, a modest blend of real estate, SKAGEN equity funds, Storebrand fixed income funds, and some venture capital or start-up opportunities, is not immune to becoming similarly unbalanced. I make it a point of discipline to rebalance between asset classes when I observe this in my periodic checks. Maintaining a consistent investment strategy, within reason, is an important tool in managing risk, perhaps second only to maintaining a long investment horizon. And SKAGEN’s advisors stand ready to assist with this.

God sommer

Finally, for those seeking inspiration, my summer books this year include the following:

  • The Edge by Jonathan Maxwell – while I find much of the material relating to sustainability unreliable and self-serving, this book illustrates clearly how competition for resources has triggered geopolitical tensions, often defining the fabric of international relations. It helps to discern greenwashing from genuine environmental stewardship. And it addresses the challenges we face in the energy transition. I know Jonathan Maxwell and he is a very smart man and a successful investor, and he writes in a way that makes his subject matter very accessible.
  • The Road to the Country by Chigozie Obioma – is set in late 1960s Nigeria during the Biafran War. I grew up in Nigeria in the 1970s with the war a recent memory, so it is a period and a place that has always held great fascination for me. The novel comes highly recommended and features themes of war, family, and personal redemption.
  • Table for Two by Amor Towles – interestingly Amor Towles is a former fund manager, but I prefer him as a novelist. His first three novels — Rules of Civility, A Gentleman in Moscow, and The Lincoln Highway — are superb. This latest work is a collection of short stories and one novella. Towles is a master of the bait and switch or twist in the tail; we see the flash of light right before the shock wave strikes, often in the final sentence.

It only remains for me to wish you all a restful summer with family and friends.

God Sommer

[i] The Magnificent Seven group comprises Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla
[ii] As of 5 July 2024, all measured in USD
[iii] Financial Times: “The triumph of big boring stocks”

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